Using a tool for assessing SaaS pricing, OpenView collected data from 1,800 companies, giving an expansive look at how the industry is approaching pricing.
Kyle Poyar**, **Senior Director of Market Strategy @ OpenView Venture Partners:
Using a tool for assessing SaaS pricing, OpenView collected data from 1,800 companies, giving an expansive look at how the industry is approaching pricing.
Few Companies Are Doing It Right
The tool accessed whether companies were honing their target market and buyer, conducting pricing research, and using a process to reevaluate pricing. Only 4% of companies received an excellent score, while 44% of companies failed. Later stage companies did marginally better with 13% receiving an excellent score and 26% failing.
A key takeaway being that far too few companies are taking advantage of packaging flexibility of the SaaS business to take a value-based approach to pricing:
39% value-based approach
26% make judgment call
25% copy competitors
10% cost-plus approach
But More Are Adopting Value Metrics Based On Usage
Value metrics define how and how much a company charges. Slack uses a seat-based model and prices based on users. Companies like Twilio and AWS price on usage (transactions, storage, computing, servers).
While seat-based pricing is still the most popular model, usage-based pricing is catching up. 38% of companies now price based on usage. And those that do are more likely to say that their pricing aligns with value.
The advantages of usage-based pricing are:
price better reflects product value
model allows customers to start small
seamless expansion as customers get hooked
Companies Are Changing Pricing
Nearly four-in-five companies are changing their pricing at least once per year, with most changing pricing multiple times. Later stage companies revisit pricing less often, but still at least once a year.
With pricing changing so regularly, companies should reflect on how it is actually impacting KPIs. Are they collecting the right data to understand pricing changes and their impacts?
Publish Pricing? Discount?
45% of companies publish pricing, 55% do not. The biggest factor is deal size:
69% of companies with $5k deals publish their pricing
35% of companies with $5-25k deals publish pricing
11% of companies with >$25k deals publish pricing
And, finally, while conventional wisdom in the past was to never pay full price for software, today 31% of companies surveyed said that they do very little discounting, with another 38% only occasionally discounting.
Summarized by Reforge. Original article by Kyle Poyar • Senior Director of Market Strategy @ OpenView Venture Partners
Using a tool for assessing SaaS pricing, OpenView collected data from 1,800 companies, giving an expansive look at how the industry is approaching pricing.
Kyle Poyar**, **Senior Director of Market Strategy @ OpenView Venture Partners:
Using a tool for assessing SaaS pricing, OpenView collected data from 1,800 companies, giving an expansive look at how the industry is approaching pricing.
Few Companies Are Doing It Right
The tool accessed whether companies were honing their target market and buyer, conducting pricing research, and using a process to reevaluate pricing. Only 4% of companies received an excellent score, while 44% of companies failed. Later stage companies did marginally better with 13% receiving an excellent score and 26% failing.
A key takeaway being that far too few companies are taking advantage of packaging flexibility of the SaaS business to take a value-based approach to pricing:
39% value-based approach
26% make judgment call
25% copy competitors
10% cost-plus approach
But More Are Adopting Value Metrics Based On Usage
Value metrics define how and how much a company charges. Slack uses a seat-based model and prices based on users. Companies like Twilio and AWS price on usage (transactions, storage, computing, servers).
While seat-based pricing is still the most popular model, usage-based pricing is catching up. 38% of companies now price based on usage. And those that do are more likely to say that their pricing aligns with value.
The advantages of usage-based pricing are:
price better reflects product value
model allows customers to start small
seamless expansion as customers get hooked
Companies Are Changing Pricing
Nearly four-in-five companies are changing their pricing at least once per year, with most changing pricing multiple times. Later stage companies revisit pricing less often, but still at least once a year.
With pricing changing so regularly, companies should reflect on how it is actually impacting KPIs. Are they collecting the right data to understand pricing changes and their impacts?
Publish Pricing? Discount?
45% of companies publish pricing, 55% do not. The biggest factor is deal size:
69% of companies with $5k deals publish their pricing
35% of companies with $5-25k deals publish pricing
11% of companies with >$25k deals publish pricing
And, finally, while conventional wisdom in the past was to never pay full price for software, today 31% of companies surveyed said that they do very little discounting, with another 38% only occasionally discounting.
Summarized by Reforge. Original article by Kyle Poyar • Senior Director of Market Strategy @ OpenView Venture Partners